Opposition To Foreign Condo Sales Raises Legal Questions

When Jay Fang appeared before a Honolulu City Council committee, one aspect of his proposed luxury condominium tower near Ala Moana Center drew particularly sharp questions: Fang’s supposed plan to sell a lion’s share of the units to buyers from China.

Fang has repeatedly said the committee had misunderstood his previous testimony: he had meant to say his investors, not his buyers, were from China.

But the perception has remained, opening up the project to strident criticism from some council members.

The proposed Hawaii City Plaza project near Ala Moana Center will include 163 condominium units.

Hawaii City Plaza

“If you’re looking to provide 25 rental units and then you’re going to take 130-some odd-units and market them in China, sir, then I’m not interested in that, quite frankly,” Councilman Ikaika Anderson said during the May 4 meeting.

Honolulu City Council Vice Chair Ikaika Anderson. Legal experts say Anderson’s comments about a proposed development may create legal problems for the city.

Cory Lum/Civil Beat

Committee chair Kymberly Pine also weighed in, asserting that Fang had previously told the committee that he had sold 60 percent of the condo units to buyers from China.

The notion of committing new homes to outside buyers understandably raises concerns at a time when the city is suffering from a severe shortage of affordable housing, said Gavin Thornton, an attorney who serves as co-director of the Hawaii Appleseed Center for Law & Economic Justice.

“If the City Council has the impression that the entire building is going to be filled with non-residents, I think – and I’m not a constitutional scholar – that this is a legitimate concern,” Thornton said.

The problem is that denying a permit to a developer simply because he is going to sell units to people from elsewhere might violate the U.S. Constitution.

“The Supreme Court has been very skeptical about state actions that discriminate based on race, nationality or citizenship,” said Clifford Rosky, who teaches constitutional law at the University of Utah’s S.J. Quinney College of Law.

Rosky acknowledged it’s not clear that the council members have done anything wrong, but he said, “Just the idea that they’re skirting the Constitution is not where you want to be.”

“It does seem like an attempt to discriminate against non-citizens,” said Eugene Volokh, a professor of constitutional law at the UCLA School of Law and publisher of a widely read legal blog. “The Supreme Court has held that discrimination against non-citizens is not constitutional.”

Robert Thomas, a Honolulu lawyer who specializes in land-use law, agreed the anti-Chinese buyer comments could create problems for the City and County of Honolulu.

“The good lawyers for the Corporation Counsel down at the City and County must sort of wince when they see those statements,” he said.

The Corporation Counsel’s office declined to comment, and Anderson did not return calls for comment.

Fang has previously said he plans to finance the project using a federal program that allows foreign nationals to obtain immigration visas by investing in businesses that create jobs in the U.S. In a statement, Fang said he appreciates the City Council’s desire for affordable housing and that he has had “communications and translation challenges” when discussing his plan with the council.

The Fourteenth Amendment’s equal protection clause says a state can’t “deny to any person within its jurisdiction the equal protection of the laws.” Basically this means that state and local governments can’t discriminate against people based on citizenship unless there’s a good reason to do so, the U.S. Supreme Court has said.

A Long Legal History

Whether a state or local government can deny the right of noncitizens to own property under the Fourteenth Amendment actually was explored in the early 20th century. Kajiro Oyama was a Japanese farmer living in California at a time when the Legislature had passed a law preventing noncitizens from buying land.

Detail from a mural at the offices of the ACLU of San Diego and Imperial Counties, which represented Kajiro Oyama in his suit challenging a California law prohibiting non-citizens from owning land.

ACLU of San Diego and Imperial Counties

The “basic purpose of the statute was to irritate the Japanese, to make economic life in California as uncomfortable and unprofitable for them as legally possible,” a U.S. Supreme Court justice later wrote.

Oyama was not a U.S. citizen. So in the 1930s, he bought two parcels of farm land in the name of his minor son, Fred, who was born in the U.S. and therefore a citizen allowed to own real property.

In 1942, the Oyamas were sent to an internment camp, and in 1944, a California court allowed the state to take away the Oyamas’ land on grounds that Kajiro had circumvented the land ownership law through deception. In 1948, the U.S. Supreme Court reversed the decision, saying the California law discriminated against land ownership on the basis of race because the younger Oyama was a citizen.

Although the Oyama decision didn’t explicitly say the state could not ban land sales to non-citizens, the rights of noncitizens under the Fourteenth Amendment became clearer in the 1970s, starting with a case involving welfare benefits, Rosky said.

“Since 1970, the Supreme Court has made clear that states are very limited in their ability to discriminate against aliens; indeed, they can’t even exclude them from becoming notaries, lawyers, or most kinds of government employees,” Volokh said. “It thus seems likely that states can’t try to stop aliens from owning real estate.”

Volokh noted that unlike the California case, Honolulu has not passed an ordinance prohibiting special development permits for projects that would sell units to non-citizens. But an action by the City Council could be considered discriminatory, he said.

What if a city’s action doesn’t affect buyers directly, but rather a developer seeking a zoning change to build homes intended for minorities? The Supreme Court has looked at this, too. In the landmark 1977 case Village of Arlington Heights v. Metropolitan Housing Development Corp. a developer building multi-family homes for low-income residents sued an Illinois city after it denied the developer’s rezoning request. To qualify for a federal subsidy, the development would be racially integrated.

After the town denied the rezoning request, the developer sued, saying the denial was motivated by racism and violated the Fourteenth Amendment. The Supreme Court ruled for the town, saying the developer hadn’t provided enough evidence to show the town’s action was intended to discriminate.

But the court also said the developer had standing to sue on behalf of minority tenants whose rights would be violated. And the court said it wasn’t enough for the town to assert a legitimate rationale for denying the zoning request; the court would look beyond the statements to ferret out discriminatory intent.

“The legislative or administrative history may be highly relevant, especially where there are contemporary statements by members of the decision-making body,” Justice Lewis Powell wrote.

That’s partly what makes Anderson’s comments potentially problematic, said Thomas, the Honolulu land-use lawyer. Courts often defer to land-use decisions made by a city council.

But when trial lawyers see remarks like Anderson’s, Thomas said, “The lawyers start rubbing their hands a little bit because the comments are giving them ammunition.”

City Has Other Options

Is there nothing a state or local government can do to keep its housing stock from being snapped up by rich nonresident investors?

The City Council actually is considering a bill that would require developers using the kind of permit Fang is seeking to set aside 30 percent of units as affordable housing.

Also, Thornton, the co-director of the Hawaii Appleseed Center, said the city could regulate the use of the property.

For instance, he said there could be a tax if the property was being used for anything but long-term residential occupancy, or an incentive to encourage renting to lower income people.

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